A time capsule of the greatest financial mania in the history of mankind, told in real-time by regular folks and patriots. May future generations better understand the madness of crowds, and how power and money corrupt.

March 20, 2007

Not if you're the barge-like US homebuilders. When they should be laying off and shutting down, they do the opposite. We already have record inventory sitting around gathering dust, we have over a million potential buyers unable to buy with the lending tightening, and we have a massive dropoff in demand. Yup, that's a great time for more inventory!

Everyone remember Cisco and Global Crossing in 2000? Well, now it's Toll Brothers and KB Home. Massive oversupply combined with a crippling drop in demand equals an upcoming fire sale unlike anything ever seen in US housing history.

Got popcorn?

WASHINGTON (Reuters) - The pace of U.S. home construction rose 9 percent in February, beating analysts' predictions and running against dismal news in the subprime home financing sector, a government report showed on Tuesday.

The report turned U.S. stock futures positive and was expected to firm the Federal Reserve Board's resolve to hold interest rates in place when policy-makers meet Tuesday and Wednesday.

"I don't think it changes things for the Fed at all, they are most likely going to leave rates unchanged and to maintain their bias toward tightening," said Mark Vitner, senior economist at Wachovia Securities

"The home sales data will also be heavily distorted this month, and we will probably have to wait another month for a clear sign of demand trends and the beginnings of the fall-out from tighter lending standards. All in all, too many distortions here to get the market excited," Ruskin said.

35 comments:

Funny you should show the gas can. A man in Orlando, burned his house down yesterday and then drove to the Police station and turned himself in for arson. The reason he set fire to his home, he said and according to WESH news, was because he could not afford his mortgage payment any longer.

What is a homebuiler if it is not building homes? A real-estate trust? A gigantic country club? It is so very interesting that the MSM picks up the one piece of data that is up out of the three, and the one that arguably matters least, and one that is certainly well within the study's margin of error.Feh.

Most homebuilder are using other people's money (the bank's) to build. Included in the OPM is an amout for overhead (paying the builder's bills). Most builders will continue to build using OPM until the other people say "stop".

That is why you see builders building. It is a 'hope against hop' stuatiion that occures in every cycle.

Borrower beware N.J. doesn't bother checking loan officers' ability or integrity Monday, March 19, 2007BY SAM ALIStar-Ledger Staff You need a license in New Jersey to cut hair, do nails, even groom a cat or dog.

But to sell a mortgage loan -- the single most expensive investment most consumers will ever make -- all you need is $100. No education, no criminal background check, nothing.

No wonder the state, which had 11,000 loan officers in 2000, now has some 40,000, whose sole fiduciary responsibility is to themselves. The state Department of Banking and Insurance will register anyone who can fill out a one-page form and pay an annual $100 fee.

"A Realtor has to be tested, an attorney has to be tested. But a person can write mortgages and put people in millions of dollars in debt without a single exam or a single continuing education requirement? It doesn't make sense at all," said Marilynn English, president of English Financial in Cedar Grove, who has been fighting for years for the licensing of loan officers in New Jersey.

"Under the current laws, for $100, Joe the Pizza Delivery Man can write mortgages in New Jersey," she said.

Loan officers are different from mortgage brokers, who are licensed by the state and required to post a $100,000 surety bond and have a minimum net worth of $50,000. There are about 1,500 licensed mortgage brokers in New Jersey.

Loan officers (also known as mortgage solicitors or originators) and mortgage brokers essentially perform the same function, acting as middlemen between those who need a loan and those who have money to lend. The broker or loan officer brings the two parties together, saving borrowers the hassle of shopping around. And for that, they get paid.

But while mortgage brokers are personally liable and can lose their license for fraud for the life of a loan, the army of loan officers pounding the pavement aren't accountable for their actions. Instead, they work under the umbrella licenses of the brokerages that hired them.

Ehab Abousabe, president of United Capital, a mortgage banking company in Princeton Junction, has been a longtime advocate for licensing loan officers in the state. "In order to be a mortgage loan officer in New Jersey, the only thing you need to do is find a mortgage company willing to hire you," Abousabe said. "There are no education requirements. No financial requirements. You pay a $100 fee to the state Department of Banking and Insurance every year and you can put on your business card that you are a loan officer or a senior loan officer or whatever you want to be called."

DANGEROUS MIX

For thousands of prospective homeowners -- particularly those with poor credit -- a loan officer, not a broker, is the primary point of contact when it comes to securing a mortgage loan.

It's a dangerous mix, many say: borrowers who know little to nothing about the mathematics of finance or risky loan products, and officers who churn out home loan after home loan, often without understanding the long-term risks themselves.

To make matters worse, the riskier the loan, the more the loan officers gets paid by the bank.

Aside from the fees they collect from borrowers upfront -- such as application fees, rate lock-in fees and processing fees -- loan officers get paid a rebate by the bank for bringing it the loan. This rebate is called a "yield spread premium." And as a general rule, the higher the loan's interest rate, the bigger the YSP the loan officer gets to put in his pocket.

The consequences of risky lending have become more evident with the slowing of the housing market. The last few months have seen a flurry of closures, bankruptcies and mass layoffs by subprime lenders that during the housing boom specialized in lending to risky borrowers or offered unconventional loans. At the same time, a record number of cash-strapped homeowners have been falling behind in their payments, and foreclosures are on the rise.

Last year, the mortgage industry churned out more than $2.4 trillion worth of loans, and about seven of every 10 home loans were originated by mortgage brokers.

A study by a nonprofit research group, the Center for Responsible Lending, projects that one in five subprime loans issued during 2005-06 will fail, putting 2 million homeowners at risk of foreclosure.

CRACKDOWN

more http://www.nj.com/printer/printer.ssf?/base/business-6/1174317304315730.xml&coll=1

They've made past commitments on the land purchase and infrastructure done in the anticipation of steady sales. This is entropy and it will likely result in lower prices in the summer as these "homes" reach completion. This is what will spark steeper price declines in late Spring to Summer. I suspect that quality will likely be an issue as the builders throw these shacks up with haste.

>> I nominate that HP dedicate itself to pointing the finger squarely at the Federal Reserve which bears the sole responsibility for starting this mess. This will be the next message which everyone needs to hear.

Unfortunately, if you ask your average American "What is the Federal Reserve?", I'd say 98% of them couldn't even tell you.

whats with this detroit selling at a dime, on the dollar, have we forgoten access to one of the worlds largest fresh water sources, access to rail, Canadas natural resourses,or suckers rally, on the way to depression, penny on the dollar, then again we held N>Y real estate, that would not sell at a quarter of its tax assessed value, for 14 years, and were happy? to unload at a third, to stop the tax bleed, of 18% OF ITS VALUE IN FAIR MARKET? YEARLY AND COMPOUNDING

Kind of a double-edged sword, as fewer housing starts as slows the economy as construction workers are idled or laid off.

So once a builder slows down and scuttles construction crews, it makes it harder to ramp up when those crews are needed later on.

Frankly, though, I think most large builders are saavy enough to know what a boom/bust cycle looks like, and if they were smart were planning for the inevitable down-turn even in the early days of the boom.

Can you say DENIAL? I worked in the internet industry during the 2000 crash and they were in the same state of denial, continuing to max inventory and flood the streets with sales reps and blaming the sales reps when nobody wanted to buy the company's crap anymore!!!

"I suspect that quality will likely be an issue as the builders throw these shacks up with haste."--------------------------------- This idea is unfounded. I'm in the business and less pressure to build as fast as possible results in better supervision. Also the best tradesmen are now working as the lower skilled have gone back to their previous jobs.

Builders are building because they have land sitting and must do what comes natural. Clear inventory and complete the project.

In times like these the builder secures enough buyer's to commit to purchase even if they are contingent upon sale of their personnal residence. Once the home's are completed, if the buyer's can't sell their home the recently completed home goes back on the market along with others in that construction phase.

Hap hazard construction releases are rare becuase most builders and their responsible lenders have experience in what potentially is coming.